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Season's First Natural Gas Drawdown - Analyst Blog

Monday, November 19, 2012

The U.S. Energy Department's weekly inventory release showed a larger-than-expected decrease in natural gas supplies on account of the advent of cold weather that prompted  the commodity’s brisk use for space heating by residential/commercial consumers. The storage withdrawal – the first for the winter heating season – has also cut the surplus relative to the last year and the five-year average.

About the Weekly Natural Gas Storage Report

The Weekly Natural Gas Storage Report – brought out by the Energy Information Administration (EIA) every Thursday since 2002 – includes updates on natural gas market prices, the latest storage level estimates, recent weather data and other market activities or events.

The report provides an overview of the level of reserves and their movements, thereby helping investors understand the demand/supply dynamics of natural gas.

It is an indicator of current gas prices and volatility that affect businesses of natural gas-weighted companies and related support plays like Anadarko Petroleum Corp. (APC), Chesapeake Energy (CHK), Encana Corp. (ECA), Devon Energy Corp. (DVN), Nabors Industries (NBR), Patterson-UTI Energy (PTEN), Helmerich & Payne (HP) and Halliburton Company (HAL).

Analysis of the Data

Stockpiles held in underground storage in the lower 48 states fell by 18 billion cubic feet (Bcf) for the week ended November 9, 2012, higher than the guided range (of 10–14 Bcf gain) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Companies Inc. (MHP).

The decrease represents the first withdrawal of the 2012-2013 winter heating season after stocks hit an all-time high in the previous week. More importantly, during this time last year and over the five-year (2007–2011) period, natural gas was still being added into supplies at the respective rates of 20 Bcf and 17 Bcf. Therefore, the weekly storage draw has trimmed the surplus relative to the benchmarks.

But in spite of the ‘better-than-expected’ draw during the past week, the current storage level – at 3.911 trillion cubic feet (Tcf) – is up 71 Bcf (1.8%) from the last year and 209 Bcf (5.6%) over the five-year average.

In fact, natural gas inventories in underground storage have persistently exceeded the five-year average since late September last year and ended the usual summer stock-building season of April through October at a record 3.923 Tcf (as of October 31, 2012).

A supply glut kept the natural gas prices under pressure during the past year or so, as production from dense rock formations (shale) – through novel techniques of horizontal drilling and hydraulic fracturing – remains robust, thereby overwhelming demand.

However, with the upcoming U.S. winter set to be colder than the unusually warm last one and domestic output likely to drop in 2013 versus 2012 on the back of natural gas players announcing drilling/volume curtailments, we might expect some balancing of the commodity’s supply/demand disparity.

This, in turn, could improve the prices and buoy natural gas producers like Ultra Petroleum Corp. (UPL), Talisman Energy Inc. (TLM) Encana and Chesapeake.


 
ANADARKO PETROL (APC): Free Stock Analysis Report
 
CHESAPEAKE ENGY (CHK): Free Stock Analysis Report
 
DEVON ENERGY (DVN): Free Stock Analysis Report
 
ENCANA CORP (ECA): Free Stock Analysis Report
 
HALLIBURTON CO (HAL): Free Stock Analysis Report
 
HELMERICH&PAYNE (HP): Free Stock Analysis Report
 
MCGRAW-HILL COS (MHP): Free Stock Analysis Report
 
NABORS IND (NBR): Free Stock Analysis Report
 
PATTERSON-UTI (PTEN): Free Stock Analysis Report
 
TALISMAN ENERGY (TLM): Free Stock Analysis Report
 
ULTRA PETRO CP (UPL): Free Stock Analysis Report
 
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